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Crystal ball: California State Athletic Commission audit will reveal up to 7-figures $ missing

By Zach Arnold | August 28, 2012

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With the recent announcement by the Joint Legislative Audit Committee that the California State Athletic Commission, controlled by Denise Brown’s Department of Consumer Affairs, will get audited we decided to write an article to prepare everyone for what may be upcoming in regards to the results found in said audit.

We have already heard word that various auditors have started their work for the state of California. There are allegedly auditors that focusing specifically on certain tasks (such as some auditors going to live events to see how everything is operating under the ridiculous ‘3-inspector policy’ now being instituted).

Given the amount of sources I have interviewed and the amount of research information that I have obtained, I feel comfortable enough in developing a report that will give you some of my predictions as to what the auditors will find is wrong with the Department of Consumer Affairs and CSAC. Keep in mind that DCA will be interested in how to spin the audit so they can cover their asses when some of the skeletons in the closet are revealed.

As the public has seen with the drug testing debacle that happened on Monday, you can only imagine what is really hidden beneath the surface. Some of the truths are flat out frightening, both from a financial and health & safety perspective.

So, what are some of our predictions as to what auditors will find is wrong with the California State Athletic Commission? Warning: Our list of predictions is extensive and thorough. There was no other way we could avoid writing this article without painstakingly laying out where the cash is missing and who’s involved in this mess.

WHAT WILL BE FOUND?

1. Tampering by the Department of Consumer Affairs in regards to the Neurological Fund.

The neurological fund, just like the boxer’s pension fund, is a DCA-controlled fund that event promoters pay into based on a percentage of the ticket sales going to finance these accounts. The money goes directly to DCA, not to CSAC. In the case of the boxer’s pension fund, hardly any of the money has been distributed to boxers who contributed to the fund in the first place due to eligibility requirements. If you fought two or three decades ago, only now would you be qualified to receive any sort of money. What makes this process a total joke is that CSAC has no plan or idea on how to get the money distributed to the fighters because they don’t have any sort of idea about which fighters to contact or how to get the cash to them.

The neurological fund is an even bigger controversy. Promoters have paid into this fund and nothing has been done, on the surface, with the cash. The idea behind the fund was to help finance medical testing for concussions, such as baseline testing, and to produce study results on how to implement changes to make combat sports safer. So, what’s happened to the cash? On paper, the cash has just been sitting around in the hands of Consumer Affairs. In order to believe that nothing has happened with the cash, such as the cash being loaned to other departments under the DCA umbrella or cash being spent to pay off debt at certain departments, you have to trust in DCA that they’re managing the money properly and that it could withstand a forensic audit.

I don’t buy for a second that DCA could withstand a forensic audit of the neurological fund, especially given what has happened with the Parks & Recreations Fund scandal that blew up in Governor Jerry Brown’s face. With California having over 500 special funds and politicians having so much cash at their disposal, abuse & fraud is ripe.

2. The finances started to implode during the tenure of Bill Douglas, Che Guevara, and Dave Thornton in 2008 & 2009. DCA’s fingerprints are all over the budget troubles. Who signed off on what and why?

When we looked at the budget numbers for CSAC over the last five years, we noticed that spending started blowing up in the faces of Consumer Affairs right after Armando Garcia left due to a sexual harassment case that the state settled for $75,000. Armando was bringing in significant revenue to the commission and the commission was spending the resources to get inspectors at the shows. Once the revenues started to decline and DCA politics inflamed matters into a worse predicament, the cracks in the foundation started to show.

The cracks started to show because of the baseline budgeting. In other words, DCA rubber stamped budgets from their hacks like Thornton and these budgets contained such high baselines for spending that any amount on paper that was under the baselines suddenly looked friendlier. The whole issue of Consumer Affairs appointing Thornton, a Sacramento DCA lifer from the Medical Board, as Executive Officer to CSAC was a joke. DCA replaced Armando Garcia with a man who had ten times the settlement amount ($750,000) for his own sexual & racial harassment lawsuit troubles. Bill Douglas was charged with seven misdemeanors for allegedly trying to sabotage the CSAC front office when George Dodd was in power.

When Armando Garcia left CSAC, the commission had the best drug testing policy in America (amongst the state athletic commissions regulating combat sports). Now there are too few inspectors at events, the most qualified inspectors are not getting worked by Sacramento, and you have stunning drug testing follies like what we saw this week with Kathi Burns (another DCA lifer) at CSAC.

Just don’t expect the auditors to put any blame on the Department of Consumer Affairs since that would hurt Governor Jerry Brown politically.

3. Dwayne Woodard’s legal claim about Sacramento’s plan to wipe out the competent ‘old guard’ by replacing workers with a less competent ‘new guard’ is very real & substantive.

If you aren’t up to speed on inspector Dwayne Woodard’s lawsuit alleging that the Department of Consumer Affairs is guilty of age discrimination & retaliation, read the document. It will give you a window into just how crazy the thought process is in Sacramento for making decisions at CSAC.

One source put it to me this way yesterday: “If I know one thing about the commission it’s that setting people up for failure, regardless of cause, is their specialty.”

Why would the state of California (Department of Consumer Affairs) chase out highly-respected workers from CSAC in order to replace them with incompetent hacks? Political control. DCA would rather have stiffs who tow the political line than individuals who speak up and alert Sacramento to troubles out in the field. Consumer Affairs would rather use individuals who are semi-literate and can’t properly fill out a ticket manifest ledger rather than use someone who is totally competent but is willing to speak up and tell the truth about what is really going on.

Who has benefited from the political exodus of the old guard in favor of the new guard? Start with Sacramento-favored Sid Segovia, a man who isn’t a state employee who somehow managed to get over $40,000 last year. As we noted in our tax report on CSAC, he sure found a way to work a lot of hours:

Given that he’s not technically a full-time state employee, this would mean that his hourly wage as inspector would be somewhere in the $35-40/hour or so range. Take 2011 for example. $41,000 was paid out to him. Divide that by $35 and you get 1,171 billable hours. That means, under our hypothetical, that he was billing CSAC for approximate 20-22 hours worth of pay each week.

And then there’s political animal Mohammad Noor, who by all accounts is an extremely competent inspector but also has reason to keep his mouth shut and not stand up against political misdoings. He managed to make over $180,000 the last five years and had a year (2009) where he made more as an athletic inspector than he did with his day job at the Department of Finance.

All one needs to do to see the sabotage of the old guard at work is to take a look at what California Deputy Attorney General Karen Chappelle & DCA did to former CSAC Chief Athletic Inspector Dean Lohuis. Lohuis & inspector Mike Bray managed to resolve a situation involving Che Guevara missing the illegal hand wraps of boxer Antonio Margarito three years ago at a Staples Center event. If the hand wraps had not been discovered, Margarito would have pummeled Shane Mosley with them. Under any normal circumstance in a private business, Guevara would have either been severely punished or fired by the boss.

So, how did DCA & Chappelle handle the matter? Despite having an open-and-shut case against Margarito without any need to tamper with evidence or change testimony, Chappelle ended up screwing up the CSAC hearing with Margarito by presenting two different perspectives of testimony as to what happened at Staples Center. Lohuis & Bray told their version of the truth while Chappelle & Che told theirs. Yes, the California Deputy AG believed the word of the man who couldn’t see the illegal hand wraps in front of his face before she believed the word of two competent individuals who knew what the hell they were doing.

The end result? DCA filed a notice of adverse action with the State Personnel Board against Dean Lohuis to get him fired from CSAC, with the claim by Chappelle that Lohuis tried to alter Che Guevara’s testimony at the Margarito hearing. The absurdity of this knows no bounds. It was the responsibility of Chappelle to determine what testimony was offered at the Margarito hearing, not Dean’s responsibility. Lohuis and Bray weren’t going to perjure themselves on the stand. Why on earth would Chappelle take an open-and-shut case against Margarito and try to manipulate the facts as they stood? It’s beyond comprehension.

What isn’t beyond comprehension is that Lohuis got canned by the state, Che Guevara got promoted to Dean’s job as Chief Athletic Inspector after missing the Margarito hand wraps, and Mike Bray (as our tax records demonstrated) has clearly been a victim of retaliation at the hands of the Department of Consumer Affairs. Why would DCA push out credible workers and back a lying hack like Chappelle, who a judge claimed made an arbitration decision on the Robert Guerrero matter between Golden Boy & Goossen-Tutor that was based on fraud and/or corruption?

And to top it all off, Che Guevara is considered a favorite to become the next Executive Officer of the California State Athletic Commission. That would certainly complete a toppling of the qualified old guard in favor of the incompetent new guard, wouldn’t it? If Sacramento is stupid enough to appoint Che Guevara as the next CSAC E.O. they may as well get their checkbooks ready to pay off millions of dollars in future lawsuit settlements.

4. A big disconnect on the ground between the Sacramento CSAC office and the inspectors out in the field.

There are two aspects to this. The first is that there is a legitimate disconnect between the inspectors in Northern/Central California and the inspectors in Southern California. For all intents and purposes, California practically behaves as if it is two separate states when it comes to information sharing & communication. Even though inspectors are supposed to work in their own designated area, the truth is that it makes their job that much more difficult when it comes to keeping up with the latest information on fighters and promoters throughout the state. There really isn’t an information pipeline for the inspectors on the ground. I’m not referring to gossip chatter, either. I’m talking about keeping up with fighters who work one part of the state and try to fight in the other part of the state on short notice.

But isn’t that the role of Sacramento’s office to keep everyone informed? You know and I know that this is a matter of the blind leading the blind. There is little information sharing other than Sacramento telling inspectors to call them on the phone to cite random law codes in order to operate events such as weigh-ins.

It gets worse. Not only is there is not a proper information pipeline between Northern California and Southern California inspectors, there’s no pipeline between Sacramento and the Southern California inspectors at all. The inspectors practically are on their own when it comes to managing shows in Southern California. Outside of sending in event packets and the occasional phone call, you could not have a situation where there is less contact about what is happening in the state. I fully understand that California has more shows than any other state, nearly double than their next competitor, and that you can’t micromanage everything. However, the Sacramento office doesn’t even try to manage events on the ground outside of traveling to big shows in the state. The smaller and mid-sized shows get completely lost in the shuffle. The end result is that you have inspectors who are basically on their own trying to handle business affairs for the state and they are left angry, frustrated, demoralized, and/or alone when it comes to having any sense of cooperation with the bosses up North. The Balkanization that has resulted is real and it’s impacting the way the state handles business affairs on the ground.

About two-thirds of all the shows in California happen in Southern California — and yet the power structure is up North. There is no strong voice or leader coming out of Sacramento to help manage affairs where there is the most activity. And by managing I don’t mean sitting on the phone and acting like they know everything that is going on at the shows. They know little, if anything, about what is actually happening on the ground.

Later in this article, you will read our prediction on just how out of touch the Department of Consumer Affairs is when it comes to knowing how to follow the laws on the books and how to decipher a box office.

5. The manipulation of CSAC by the Department of Consumer Affairs has destroyed the commission due to political motives.

Under section 18611 (with Section 154), the California State Athletic Commission has the right to hire their own legal counsel through the State Personnel Board. They haven’t done so. Why? DCA legal controls and manipulates the way business is done at the CSAC front office in Sacramento.

Even the Pest Control Board has their own legal counsel in California. CSAC, which oversees a sport with tons of potential liability, has none. That tells you just about everything you need to know.

There is no independence for CSAC. DCA controls all the strings and makes the personnel decisions. They are the ones who picks the winners and losers. They certainly have a knack for picking losers. If it wasn’t for Zuffa buying out Strikeforce and taking away revenue from the San Jose events, DCA wouldn’t be panicking right now about the way money has been spent at CSAC. After all, DCA is the one who rubber stamps who gets paid and how business affairs are handled. They’re the ones, along with the state Senate and the Governor’s office, who manage to strip away power from the Executive Officer’s slot at CSAC.

To top it off, a lot of times the legal department at Consumer Affairs is wrong on the advice or opinions they give. Whether it’s due to incompetence or intentional sabotage, they have produced execrable results and have made CSAC the ultimate punchline for all American athletic commissions. This is what happens when you put people on the commission who are looking to pad their CV in order to run for political office rather than actually bringing in people who have experience in combat sports.

6. CSAC has no written policies & procedures manual/guide for the lead inspectors to follow.

The reality is that not every inspector is going to be competent enough to know the rules & regulations by memory, so having some sort of employee handbook would be useful. CSAC has been told in the past to create these handbooks and they haven’t. There’s no guide. Again, it’s a case of the blind leading the blind.

Manuals are not e-mail memos. We’re talking about guides with actual step-by-step documentation of what the laws on the books are and what needs to be followed. I can’t imagine what some of the auditors on the ground right now are seeing with some of the inspectors at the live events.

What makes this situation even crazier is that the Sacramento office picks who the supervising/lead inspectors are for shows arbitrarily and not based on actual inspector qualifications (skills, experience). This is why you have some inspectors, who can’t do the proper math to manage a box office, getting work as lead inspectors. Want to know why Sacramento is missing some cash? This is a good focal point to analyze.

7. CSAC’s critical understaffing of inspectors/officials at smaller & mid-sized shows has lead to a decrease of safety for fighters and is creating a new climate for cheating.

This is what happens when you have individuals like CSAC Chairman John Frierson saying that three inspectors is enough for a small show. Nevermind the fact that inspectors have to stay with fighters for their drug testing until the sample is procured. Nevermind the fact that three inspectors trying to manage multiple locker rooms with fighters and trainers looking for ways to cheat on the hand wraps is an almost impossible task. Nope, none of those considerations should be taken into account. Why? Because Che Guevara, the man who missed the Antonio Margarito hand wraps right in front of his face, is now advising short-handed inspectors on how to make sure that hand wraps are being managed properly.

Here’s Che from an internal CSAC memo a few months ago:

Two inspectors will be stationed in the red and blue locker room from report time to first bout.

The inspector’s assigned to a locker room will continue to check athlete equipment, trainer bucket, and oversee hand wraps.

At larger, or more challenging venues, we will have assistance from qualified CSAC officials when necessary to assist in approving hand wraps.

When logistics allow, we will instruct trainers to wrap hands towards the center of the room so Inspectors can observe as many hands being wrapped as possible.

I understand this is going to be a huge adjustment for many of us and we will face numerous challenges as we try to maintain an acceptable level of safety.

Acceptable level of safety? Here’s Che in a June 7th CSAC internal memo:

There are going to be many procedures that we will not be able to do during this time; escorting athletes to the ring or bathroom, keeping locker rooms free of non licensed people, etc.  Unfortunately we will not be able to handle a lot of the things we would normally do. But it is crucial that we use our best judgment to not compromise an athlete’s health and safety.

The lead inspector may ask you to do the following things: Be in the back until the first bout begins, then relocating to ringside to observe corners. Work the locker rooms throughout the event. Be stationed at the ring / cage for the duration of the event

Also, the lead inspector will look to use all resources available to him/her at an event or weigh in for assistance: In certain situations we will use designated referees to assist in hand wrap observation, and equipment checks when an inspector is not available. In short, we may have to lean on other qualified people, key word being qualified, to assist us in ensuring the health and safety of fighters.

There will be no designated payout out and suspension inspector. The task will be delegated to the working inspectors, and the ringside physician.

No suspension inspector? For a state that has had numerous incidents of suspended fighters working shows, this is a real sticking point for me personally. It’s not up to the promoters to make sure that their fighters are off suspended lists. If it was up to the promoters to be 100% truthful all the time, we wouldn’t have commissions in the first place to oversee the health & safety of the sport!

I guarantee you that the lack of inspectors & supervision at shows is resulting in boxers who are skinning their gloves (manipulating the knuckle padding) and using illegal hand wraps more frequently. I’ve already heard of a couple of recent events where there have been some dangerously close near-misses in regards to fighters skinning their gloves. Throw on top of that the ability to use foreign substances and the ability for fighters or their entourages to hide active drug use at events and you have a recipe for disaster.

This is the commission asking for trouble when it comes to bad publicity and big liability. Penny-wise and pound-foolish.

8. The Sacramento office is months behind on paperwork and has lost critical medical information.

From all accounts, paperwork issues are a nightmare at the CSAC office. We’ve had multiple sources indicate to us that licensing & medical paperwork gets lost frequently. I predict that the auditors will find that some of the paperwork has been post-dated.

In addition to losing their own paperwork, CSAC is months behind in reporting results to agencies like Fight Fax and the Association of Boxing Commissions. With cuts to staffing in the front office, I don’t see this situation improving any time soon with the current crew in Sacramento. Plus, if you have people in the front office who are also working as show inspectors, that means they aren’t around the office all the time and thus aren’t 100% focused on handling the business duties.

Remember, the process for medical records & licensing isn’t computerized. It’s 2012 and we’re still talking about everything being done on paper here. You have licensees who pay the same day to get licensed. Is the money being collected properly at events and, if so, is it being compared to the number of licenses issued? I think it’s safe to predict that the auditors will find some discrepancies here. If Sacramento is not auditing the show package, who would know?

The person getting licensed writes a check, the check number is written on the application, and the check is stapled to the application. If the licensee wants to pay cash or check, the inspector is required to write a receipt for the money received. That is not always done and the only way you can find that out is if Sacramento compared the licenses in the event package to the cash that was received. If Sacramento was auditing the event packages like they are supposed to…

9 and 10. CSAC & DCA don’t properly follow the laws on the books regarding how to handle the box office of shows. The inspectors have their own issues following the rules and regulations. The end result is that promoters are avoiding having to pay the state hundreds of thousands of dollars, if not millions, in money that is supposed to be owed to the state of California.

This is where the freak out factor begins for Consumer Affairs.

Auditors will discover that the CSAC front office routinely fails to audit event packets sent to them by inspectors. I predict that the auditors will discover that it’s a combination of the ticket manifests not having enough information to properly do an audit and the CSAC front office itself just not following the rules & regulations in finding out where the money is missing from the box offices & licensing fees collected.

Let’s take, for example, an excerpt from a memo that now-former Executive Officer George Dodd sent out on May 24th:

Third, the number of hours that a lead inspector may claim to prepare for the event and complete the event package prior to sending it back to Sacramento is limited to two hours. Once you have spent two hours on this process, you must stop working and send the package back to the CSAC staff, who will finish whatever paperwork is left undone. To accommodate this time frame, CSAC office staff will work with lead inspectors to help prepare any paperwork prior the event package being sent out and at the conclusion of the event the lead will complete as much of the closing paperwork as possible, and send the package back to the CSAC. To help reduce closing paperwork duties, the CSAC staff will e-mail the necessary reporting organization about suspensions using the paperwork returned by the lead inspectors.

The above decisions where not easy to make and neither will some future decision that need to made. I understand the important role inspectors’ play ensuring the health and safety of fighters, but I must ensure that we remain open and available to continue hosting events in California. While working under these circumstances is not ideal, I have full confidence that you will find creative and effective ways to cover the crucial parts of event regulation to ensure the safety of yourselves and the fighters. To further assist, I will be asking promoters and venues, to work hard to set up events in ways to accommodate our limited presence.

Where do I begin with this?

Let’s start with an example of how promoters are bypassing having to pay the commission more than they should be paying. Promoters, by in large, have their own records (accurate), the record they report to the event venue, and the record they report to the commission. Unless you subpoena a promoter in a lawsuit, you’re not going to discover what the promoter’s own records show. For example, a promoter gets a sponsorship deal with a company for $2,000 and in exchange for the sponsorship deal the promoter gives out tickets to the sponsor. In some cases, the tickets given to the sponsors are not marked as sold tickets or as comps, they’re just ignored at the box office. This scenario means the tickets not listed as comps or tickets sold (or even reduced tickets) are not listed as part of the box office despite the fact that the promoter pocketed sponsorship money and the sponsor got tickets in return. The state, in turn, doesn’t get money because the transactions are not listed on the ticket manifest.

There are plenty of scenarios involving illegal ticket sales that promoters easily navigate in California because many inspectors aren’t on the ball or even have knowledge of what the laws are.

Let’s take a look at some of the rules & regulations not being followed and how it impacts revenue (lost) for the state of California.

Next page: How the Sacramento CSAC office & inspectors out in the field have cost the state big cash

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Topics: Boxing, CSAC, MMA, Media, Zach Arnold | 3 Comments » | Permalink | Trackback |

3 Responses to “Crystal ball: California State Athletic Commission audit will reveal up to 7-figures $ missing”

  1. rabies says:

    The DCA better hope the auditors don’t stumble onto this site.

  2. Steve says:

    Next up please- The ridiculous way that Officials’ assignments are being alloted of late. Cronyism you say? You’d think this important task would fall to the Executive Officer, but it seems the political machine is at work here as well. Dig deeper.

  3. [...] Tuesday, we posted a very detailed article laying out our case of what auditors working for the state of California may find during their [...]

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